Vector pulls plug on NGC rights plan

Vector has pulled the plug on a plan to offer NGC shareholders preferential rights in its own float, if they agreed to sell their shares.

The Auckland-based powerlines company, owned by local power users, is floating up to 24.9 per cent of the company in an initial public offering (IPO) next year, raising at least $500 million to buy gas pipelines company NGC.

It is offering a price below the market value for NGC shares, but had offered as a sweetener preferential rights in next year's IPO.

Australian Gas Light, which sold its 66 per cent stake in NGC to Vector last month, was offered the same IPO rights but turned them down.

The Takeovers Panel then said this broke the rules - that the takeover offer had to include the same terms and conditions for all shareholders

Vector chairman Michael Stiassny said the deal was still a good one and was confident it would be viewed favourably by NGC's independent directors.

Despite the price being offered by Vector falling well below the present market price of NGC shares, which closed up 3c to $3.19 yesterday, Stiassny said it was an 11 per cent premium "over the volume-weighted average share price for the six-month period prior to the date of the agreement reached with AGL in October".

The higher share price had been attributed to the value placed by the market on the preferential rights in the Vector IPO, but with these now gone, attention will turn towards the prospects of a higher price than the $2.91. Any NGC shareholder taking the $2.91 a share price would have been able to get a 5 per cent discount on the Vector float, along with the right to buy a minimum of $500 worth of the new shares for every $1000 of NGC shares sold.

One takeovers legal specialist said Vector could ask NGC shareholders to approve a different offer for AGL, which would require at least 50 per cent approval at a special meeting. Another way around the problem would be to ask shareholders to "tick the box" if they wanted the preferential rights, hoping AGL declined.

Neither of these methods have been picked, with Vector prepared to run the risk of not having this sweetener in its takeover offer.

Vector is understood to have been keen on the IPO preferences being offered to NGC shareholders, in the belief that this sweetener would take it over the 90 per cent threshold that triggers the compulsory acquisition of all remaining shares. The risks posed by offering AGL the preferences are now seen to be too high.

Vector's bond holders have priority rights in the IPO, and the company's 280,000 income beneficiaries are also due to get some kind of preference.

Vector's offer

* To promote the takeover offer to NGC shareholders, Vector offered preferential rights in the float in exchange for their shares.

* The Takeovers Panel said that was not acceptable as small shareholders were getting a different offer from majority owner AGL.

* Instead of offering the rights to AGL, with the risk it might accept it, Vector has withdrawn them from the takeover offer.

* The offer is being posted out this week and closes on February 4.

* NGC's independent directors will give their assessment of the offer on Friday.